Business Lending Glossary
Plain-English definitions of common financing terms.
- Amortization
- How a loan is paid down over time; each payment covers interest and part of the principal.
- APR (Annual Percentage Rate)
- The yearly cost of borrowing including interest and certain fees, expressed as a percentage.
- Balloon payment
- A larger final payment due at the end of a term when the loan is not fully amortized.
- Collateral
- An asset pledged to secure a loan, such as property, equipment or receivables.
- Debt service coverage ratio (DSCR)
- Net operating income divided by debt payments; lenders use it to gauge ability to repay.
- Factor rate
- A multiplier (e.g. 1.2) used to price some short-term financing; total repayment = amount × factor.
- Loan-to-value (LTV)
- The loan amount as a percentage of the collateral’s value.
- Origination fee
- A one-time fee for processing a loan, often a percentage of the amount.
- Personal guarantee
- A promise by an owner to repay the business debt personally if the business cannot.
- Prepayment terms
- Conditions or fees that apply if a loan is paid off early.
- Principal
- The amount borrowed, excluding interest and fees.
- Secured vs. unsecured
- Secured loans are backed by collateral; unsecured loans rely on revenue and credit.
- Term
- The length of time over which a loan is repaid.
- UCC lien
- A public filing that records a lender’s interest in business assets used as collateral.
- Working capital
- Funds used for day-to-day operations — current assets minus current liabilities.